📖Li Lu
Risk-First Approach
Consider the downside before the upside.
Before considering how much you can make, consider how much you can lose. Risk management is not about avoiding risk entirely, but about understanding and controlling it.
🏠 Everyday Analogy
📖 Core Interpretation
Li Lu treats survival as the first objective. Limiting permanent capital loss, controlling leverage, and avoiding single-point failure are prerequisites for long-term compounding.
💎 Key Insight：Risk management is about understanding, not avoidance.
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❓ Why It Matters
A single large drawdown can erase years of progress. Risk control is not timidity; it is the operating system that keeps compounding alive.
🎯 How to Practice
Define downside scenarios before entry, cap position size, avoid fragile leverage, and maintain liquidity so mistakes remain survivable.
⚠️ Common Pitfalls
Equating volatility with all forms of risk
Oversized positions without an exit plan
Using leverage to compensate for uncertainty
📚 Case Studies
1
Post‑SARS Chinese Banks Review (2003)
Li Lu studied major Chinese banks after SARS, focusing on their deposit franchises, regulatory protection, and scale advantages as moat characteristics.
✨ Outcome：Selected top institutions with strong moats and avoided weaker lenders, resulting in superior long‑term returns versus the Chinese financial sector.
2
BYD Governance Concerns (2011)
Investor skepticism arose over BYD’s related‑party transactions and rapid equity issuance, raising questions about capital allocation discipline and minority shareholder treatment.
✨ Outcome：Li Lu engaged with management, judged integrity and long‑term focus intact, maintained position; BYD later compounded significantly in value.
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